8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

August 3, 2010
Date of Report
(Date of earliest event reported)

SMITH INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 1-8514
(Commission
File Number) 95-3822631
(I.R.S. Employer
Identification No.)

1310 Rankin
Houston, Texas
(Address of principal executive offices)

77073
(Zip Code)

(281) 443-3370
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

     A copy of the news release dated August 3, 2010, announcing the Registrant’s financial results for the quarter ended June 30, 2010 is furnished as Exhibit 99.1 to this report on Form 8-K, and is incorporated herein by reference.

     The information contained in this report and the exhibit hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filings made by Smith International, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits

(c) Exhibit

99.1 News Release dated August 3, 2010 with respect to the Registrant’s financial results for the quarter ended June 30, 2010.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SMITH INTERNATIONAL, INC.
Date: August 3, 2010	/s/ Richard E. Chandler, Jr
	By: Richard E. Chandler, Jr.
	Senior Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit No.		Description
	99.1	News Release by the Registrant dated August 3, 2010.

EX-99.1

Exhibit 99.1

NEWS RELEASE

Tuesday, August 3, 2010

Contact:	Shawn Housley
	Director, Investor Relations
	(281) 443-3370
	shousley@smith.com

SMITH INTERNATIONAL, INC. QUARTERLY EARNINGS INCREASE 124 PERCENT OVER PRIOR YEAR

     HOUSTON, Texas (August 3, 2010)...Smith International, Inc. (NYSE: SII) announced second quarter income from continuing operations of $71.7 million, or $0.29 per diluted share, excluding net after-tax charges. Reported net income for the second quarter of 2010 was $65.1 million, or $0.26 cents per diluted share, on revenues of $2.30 billion. The impact of current quarter charges for transaction costs associated with the proposed merger with Schlumberger and Venezuela currency-related losses were partially offset by a remeasurement gain reported in connection with the purchase of the remaining 65 percent interest in @Balance B.V.

     On a comparable basis, second quarter 2010 earnings from continuing operations were more than double those of the second quarter of 2009, which totaled $32.1 million on revenues of $1.94 billion. Sequential quarter earnings from continuing operations, net of charges, increased 54 percent as compared to the $46.5 million on revenues of $2.14 billion reported for the first quarter of 2010.

     The Company’s financial performance in the second quarter of 2010 was favorably influenced by the continued expansion of U.S. land drilling activity, which more than offset the impact of the seasonal drilling downturn in Canada.

     Consolidated revenues rose 7 percent on a sequential-quarter basis and 18 percent from the comparable prior-year quarter. The increase over the prior period was concentrated in the U.S. market where revenues increased 19 percent as compared to the average M-I SWACO rig count which rose 12 percent. Outside the United States, significant growth reported in the Middle East/Asia region was offset by the impact of the seasonal spring break up on Canadian drilling activity and a moderate decrease in Latin America.

     M-I SWACO segment revenues were $1.16 billion for the second quarter of 2010, a 4 percent increase on a sequential basis and 14 percent above the prior-year period. The revenue growth was concentrated in the Eastern Hemisphere, principally in Vietnam, Indonesia, Malaysia and Kuwait. The impact of a 21 percent sequential increase in land-based revenue in the United States was partially offset by the seasonal decline in Canada, lower customer spending in Latin America, and the impact of the deepwater drilling moratorium in the Gulf of Mexico announced in May 2010.

     Smith Oilfield segment revenue was $650.2 million for the three months ended June 30, 2010, 13 percent higher on a sequential-quarter basis and 25 percent above that reported in the prior-year quarter. The majority of the increase was derived from the United States where revenue grew by 24 percent sequentially and 29 percent as compared to the second quarter in the prior year. The increase was across all product offerings and was particularly strong in land-based activity. In addition, sequential quarter revenue growth was reported in all other geographic areas except for Canada, which fell due to the seasonal break-up period. Eastern Hemisphere sales volumes were favorably affected by a higher demand for drilling-related products and services as well as drill bit tender deliveries with particularly strong performance in the North Sea, Iraq and West Africa.

     The Distribution segment’s second quarter revenues were $490.3 million, 9 percent above the March 2010 quarter and 19 percent higher on a year-on-year basis. Project spending in the United States for line pipe rose over 50 percent from the prior quarter and, together with higher energy sector volumes, more than offset the impact of lower seasonal activity levels from the Canadian operations.

     Improved profitability and continued focus on working capital investment allowed the Company to generate $169.1 million in cash flows from operations during the June 2010 quarter while continuing to moderately decrease its total debt. During the three months ended June 30, 2010, the Company used cash flows from operating activities together with $50.1 million of cash on-hand to fund $112.0 million of net capital expenditures, $75.1 million in acquisition-related investments and $29.8 million in dividends to stockholders.

     As indicated in the prior quarter and in response to a continuing favorable industry environment, the Company has increased its expected capital investment for the year, estimating spending to range from $420 million to $450 million. The Company stated that further capital expenditure increases throughout the year are possible and would be implemented in accordance with the terms of the merger agreement between the Company and Schlumberger Limited.

     The Company’s revenue attributable to the U.S. Gulf of Mexico represented approximately 6 percent of its consolidated revenue for the year ended December 31, 2009. The majority of revenues derived from drilling operations are generally high-performance services and products deployed in deepwater operations and, as such, the Company continues to redeploy personnel and assets as appropriate to minimize the near-term impact of the moratorium on its operating results. For the third quarter of 2010, the Company expects a $0.04 to $0.06 per share unfavorable impact on earnings due to the current drilling moratorium. At this time, Smith cannot predict what further impact the Deepwater Horizon incident may have on the regulation of offshore oil and gas exploration and development activity, the cost or availability of insurance coverage to cover the risks of such operations, or what actions may be taken by customers of the Company or other industry participants in response to the incident. Increased costs for the operations of the Company’s customers in the U.S. Gulf of Mexico, along with permitting delays, could affect the economics of currently planned activity in the area and demand for their services. A prolonged suspension of drilling activity in the U.S. Gulf of Mexico and resulting new regulations could materially adversely affect the Company’s financial condition, results of operations or cash flows.

     As previously announced by the parties, the U.S. Department of Justice and the European Commission have both cleared the proposed merger of Smith and Schlumberger Limited without any conditions. The closing of the proposed merger remains subject to approval by Smith stockholders and the satisfaction or waiver of the other closing conditions contained in the merger agreement between the companies. The 2010 annual meeting of stockholders of Smith is scheduled for August 24, 2010, at which meeting stockholders of Smith will consider and vote upon matters including the proposed adoption of the agreement and plan of merger between Smith and Schlumberger. Subject to receipt of approval from Smith stockholders, Schlumberger and Smith expect to close the merger on August 27, 2010.

     Smith International, Inc. is a leading supplier of premium products and services to the oil and gas exploration and production industry. The Company employs over 23,000 full-time personnel and operates in over 80 countries around the world.

     Certain comments contained in this news release concerning among other things, the Company’s outlook, financial projections and business strategies constitute “forward-looking statements” within the meaning of the federal securities laws. Whenever possible, the Company has identified these forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “project,” “should” and similar terms. The forward-looking statements are based upon management’s current expectations and beliefs and, although these

statements are based upon reasonable assumptions, actual results might differ materially from expected results due to a variety of risk factors including, but not limited to, satisfaction of the closing conditions to the merger between the Company and Schlumberger, the risk that the contemplated merger does not occur, negative effects from the pendency of the merger, the ability to successfully integrate the merged businesses and to realize expected synergies, the risk that we will not be able to retain key employees, expenses of the merger, overall demand for and pricing of the Company’s products and services, general economic and business conditions, the level of oil and natural gas exploration and development activities, our global operations and global economic conditions and activity, political stability of oil-producing countries, finding and development costs of operations, decline and depletion rates for oil and natural gas wells, effects of changes in laws or regulations, including the suspensions and potential drilling moratoriums in the Gulf of Mexico, seasonal weather conditions, industry conditions, including IP infringement litigation, and changes in and the costs of compliance with laws or regulations, many of which are beyond the control of the Company and other risks and uncertainties detailed in our most recent form 10-K and other filings that the Company makes with the Securities and Exchange Commission. The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

     Non-GAAP Financial Measures. The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Certain information discussed in this press release could be considered non-GAAP measures. See the Supplementary Data — Schedule III in this release for the corresponding reconciliations to GAAP financial measures for the three-month periods ended June 30, 2010 and 2009 and March 31, 2010, and the six-month periods ended June 30, 2010 and 2009. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results.

     Financial highlights follow:

SMITH INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three Months Ended
	June 30,						March 31,
	2010			2009			2010
Revenue	$	2,296,063		$	1,944,289		$	2,137,811
Costs and expenses:
Costs of revenue		1,637,394			1,415,259			1,546,631
Selling, general and administrative expenses		467,216			395,726			466,301
Total costs and expenses		2,104,610			1,810,985			2,012,932
Operating income		191,453			133,304			124,879
Interest expense		36,917			42,803			37,722
Interest income		(890	)		(729	)		(678	)
Income before income taxes and noncontrolling interests		155,426			91,230			87,835
Income tax provision		50,229			27,957			41,239
Net income		105,197			63,273			46,596
Noncontrolling interests in net income of subsidiaries		40,123			38,887			35,055
Net income attributable to Smith	$	65,074		$	24,386		$	11,541
Earnings per share attributable to Smith:
Basic	$	0.26		$	0.11		$	0.05
Diluted	$	0.26		$	0.11		$	0.05
Weighted average shares outstanding:
Basic		248,539			219,307			248,360
Diluted		250,333			220,245			249,761

SMITH INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Six Months Ended June 30,
	2010			2009
Revenues	$	4,433,874		$	4,355,768
Costs and expenses:
Costs of revenues		3,184,025			3,134,436
Selling, general and administrative expenses		933,517			846,350
Total costs and expenses		4,117,542			3,980,786
Operating income		316,332			374,982
Interest expense		74,639			70,327
Interest income		(1,568	)		(1,087	)
Income before income taxes and noncontrolling interests		243,261			305,742
Income tax provision		91,468			98,275
Net income		151,793			207,467
Noncontrolling interests in net income of subsidiaries		75,178			86,146
Net income attributable to Smith	$	76,615		$	121,321
Earnings per share attributable to Smith:
Basic	$	0.31		$	0.55
Diluted	$	0.31		$	0.55
Weighted average shares outstanding:
Basic		248,450			219,254
Diluted		250,059			219,925

SMITH INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)

	June 30,		December 31,
	2010		2009
Current Assets:
Cash and cash equivalents	$	497,660	$	988,346
Receivables, net		1,930,784		1,791,498
Inventories, net		1,880,623		1,820,355
Other current assets		254,609		215,037
Total current assets		4,563,676		4,815,236
Property, Plant and Equipment, net		1,972,242		1,923,465
Goodwill and Other Assets		4,044,813		4,000,714
Total assets	$	10,580,731	$	10,739,415
Current Liabilities:
Short-term borrowings	$	316,549	$	358,768
Accounts payable		693,556		589,748
Other current liabilities		541,951		462,273
Total current liabilities		1,552,056		1,410,789
Long-Term Debt		1,481,927		1,814,254
Other Long-Term Liabilities		655,045		684,442
Stockholders’ Equity		6,891,703		6,829,930
Total liabilities and stockholders’ equity	$	10,580,731	$	10,739,415

SMITH INTERNATIONAL, INC.
SUPPLEMENTARY DATA – SCHEDULE I
(In thousands)
(Unaudited)

	Three Months Ended									Six Months Ended
	June 30,						March 31,			June 30,
	2010			2009			2010			2010			2009
REVENUE DATA
Consolidated:
United States	$	995,703		$	772,535		$	838,432		$	1,834,135		$	1,862,075
Canada		177,344			133,612			227,713			405,057			325,896
North America		1,173,047			906,147			1,066,145			2,239,192			2,187,971
Latin America		261,762			227,499			270,809			532,571			503,606
Europe/Africa		558,782			510,689			541,454			1,100,236			1,050,504
Middle East/Asia		302,472			299,954			259,403			561,875			613,687
Non-North America		1,123,016			1,038,142			1,071,666			2,194,682			2,167,797
Total	$	2,296,063		$	1,944,289		$	2,137,811		$	4,433,874		$	4,355,768
Non-Distribution:
North America	$	703,110		$	518,725		$	634,694		$	1,337,804		$	1,254,959
Latin America		259,090			223,820			267,170			526,260			494,385
Europe/Africa		548,444			498,734			530,835			1,079,279			1,027,462
Middle East/Asia		295,107			292,204			253,322			548,429			598,414
Non-North America		1,102,641			1,014,758			1,051,327			2,153,968			2,120,261
Total	$	1,805,751		$	1,533,483		$	1,686,021		$	3,491,772		$	3,375,220
SEGMENT DATA
Revenues:
M-I SWACO	$	1,155,600		$	1,013,016		$	1,111,190		$	2,266,790		$	2,172,353
Smith Oilfield		650,151			520,467			574,831			1,224,982			1,202,867
Subtotal		1,805,751			1,533,483			1,686,021			3,491,772			3,375,220
Distribution		490,312			410,806			451,790			942,102			980,548
Total	$	2,296,063		$	1,944,289		$	2,137,811		$	4,433,874		$	4,355,768
Operating Income:
M-I SWACO	$	132,589		$	121,325		$	120,404		$	252,993		$	268,833
Smith Oilfield		80,987			47,622			56,548			137,535			153,387
Subtotal		213,576			168,947			176,952			390,528			422,220
Distribution		13,599			(9,799	)		4,702			18,301			5,722
General corporate		(35,722	)		(25,844	)		(56,775	)		(92,497	)		(52,960	)
Total	$	191,453		$	133,304		$	124,879		$	316,332		$	374,982

SMITH INTERNATIONAL, INC.
SUPPLEMENTARY DATA – SCHEDULE II
(In thousands)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,				March 31,		June 30,
	2010		2009		2010		2010		2009
OTHER DATA(a)
Operating Income:
Smith ownership interest	$	139,904	$	85,825	$	76,718	$	216,622	$	266,089
Noncontrolling ownership interest		51,549		47,479		48,161		99,710		108,893
Total	$	191,453	$	133,304	$	124,879	$	316,332	$	374,982
Depreciation and Amortization:
Smith ownership interest	$	82,121	$	78,596	$	79,790	$	161,911	$	157,030
Noncontrolling ownership interest		14,305		13,116		14,294		28,599		25,777
Total	$	96,426	$	91,712	$	94,084	$	190,510	$	182,807
Gross Capital Spending:
Smith ownership interest	$	119,361	$	62,542	$	85,333	$	204,694	$	148,304
Noncontrolling ownership interest		15,960		10,087		10,847		26,807		21,426
Total	$	135,321	$	72,629	$	96,180	$	231,501	$	169,730
Net Capital Spending(b):
Smith ownership interest	$	98,475	$	47,020	$	73,033	$	171,508	$	111,449
Noncontrolling ownership interest		13,505		9,305		9,809		23,314		19,580
Total	$	111,980	$	56,325	$	82,842	$	194,822	$	131,029

NOTE (a): The Company derives a significant portion of its revenues and earnings from M-I SWACO and other majority-owned operations. Consolidated operating income, depreciation and amortization and capital spending amounts have been separated between the Company’s portion and the noncontrolling interests’ portion in order to aid in analyzing the Company’s financial results.

NOTE (b): Net capital spending reflects the impact of proceeds from lost-in-hole and fixed asset equipment sales.

SMITH INTERNATIONAL, INC.
SUPPLEMENTARY DATA – SCHEDULE III
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)
(Unaudited)

	Three Months Ended							Six Months Ended
	June 30,					March 31,		June 30,
	2010			2009		2010		2010			2009
Operating Income :
GAAP Consolidated Basis	$	191,453		$	133,304	$	124,879	$	316,332		$	374,982
Adjustments for Charges (Gains):
M-I SWACO		8,058			2,983		12,809		20,867			22,284
Smith Oilfield		—			8,593		—		—			20,952
Distribution		—			1,265		—		—			1,916
General Corporate		6,746			160		26,722		33,468			2,641
Non-GAAP Consolidated Basis	$	206,257		$	146,305	$	164,410	$	370,667		$	422,775
Net Income Attributable to Smith :
GAAP Consolidated Basis	$	65,074		$	24,386	$	11,541	$	76,615		$	121,321
Adjustments for Charges (Gains):
Transaction-related costs		17,661			—		15,298		32,959			—
Venezuelan currency-related losses		6,340			—		19,709		26,049			—
Gain on @Balance B.V. transaction		(17,384	)		—		—		(17,384	)		—
Severance and restructuring costs		—			7,677		—		—			23,662
Market-to-market charge on interest rate contract		—			—		—		—			1,612
Non-GAAP Consolidated Basis	$	71,691		$	32,063	$	46,548	$	118,239		$	146,595
Diluted Earnings per Share :
GAAP Consolidated Basis	$	0.26		$	0.11	$	0.05	$	0.31		$	0.55
Adjustments for Charges (Gains):
M-I SWACO		0.02			0.01		0.04		0.06			0.04
Smith Oilfield		—			0.03		—		—			0.06
Distribution		—			—		—		—			0.01
General Corporate		0.01			—		0.10		0.11			0.01
Non-GAAP Consolidated Basis	$	0.29		$	0.15	$	0.19	$	0.48		$	0.67

NOTE: Management believes that it is important to highlight certain charges and gains included within operating income to assist financial statement users with comparisons between current and prior periods. For the three-month periods ended June 30, 2010 and March 31, 2010, the Company incurred $23.0 million and $15.4 million, respectively, in expenses associated with the proposed combination of the Company and Schlumberger and $0.7 million and $1.1 million, respectively, in other business combination related charges. During second quarter 2010, the Venezuelan government modified its practices with respect to certain U.S. dollar based billings indicating it would settle such commitments at 2.6 rather than 4.3 Venezuelan Bolivar Fuertes per U.S. dollar. This change reduced the U.S. dollar value of receivables outstanding as of March 31, 2010, resulting in a pre-tax loss of $11.9 million in the second quarter of 2010. In the first quarter of 2010, the Company incurred $23.0 million in charges associated with the revaluation of its Venezuelan Bolivar Fuertes denominated net asset position. The Company recognized a pre-tax gain of $20.8 million in the second quarter of 2010, as a result of remeasuring its previously held equity interest in @Balance. Amounts reported in the 2009 periods relate primarily to employee severance associated with the reduction in U.S. personnel levels.